Purchasing Real Estate with Business
My question involves business law in the state of: Ohio, but I think jurisdiction would not matter for this question.
Purchasing real estate with business for sum total of $130,000 with $100,000 allocated to real estate and $30,000 allocated to business, which is an asset only purchase.
I want to have the business in a S Corporation, but own the real estate in my own name. Is this wise? More info: the real estate actually has two buildings: one is an apartment (rented out) and the other building is for the business, which may have drunk patrons; not a bar, but allows bring your own beer.
Should I incorporate first, then contribute $30,000 into the corporation and pay $100,000 from my own name for the real estate? Or is it okay to pay $30,000 for the business assets, then transfer those assets into the corporation? Is it okay to own the real estate in my own name? I know a business/tenant can sue the landlord, but since I would own the business and property, that would not be an issue. Can a customer of the business sue the landlord?
From a tax perspective, it's usually not wise to own real estate in a corporation. I know LLC is the usual choice, but I prefer to own real estate in my own name if there are no liability issues in order to avoid all the extra administrative costs. Also, in case business gets sued, I don't want the real estate to be something that can be lost in the suit, barring a pierce the corporate veil situation. But, on the other hand, I don't want the possibility that a customer of the business sues the landlord (me) personally and goes after everything I got. Please advise.
1 Answer from Attorneys
You asked a lot of different things and so I am sure I won't get every one of them, but I will see if I can at least speak to some of the bigger issues.
Generally speaking, an owner of real estate always has potential liability for the property. If someone slips and falls, for instance, that person would be crazy not to go after both the landlord/owner and business. It is usually best for real estate to be held in an entity of some sort. I usually recommend LLCs because of their flexibility over corporations - there really aren't that many extra administrative costs to get an LLC formed and keep it going.
In your case, if you are thinking about purchasing both real estate and a business (which I assume you intend to run), I would probably suggest forming two entities - one for the business and one to own the real estate. That would help protect the real estate from the debts and liabilities of the business, the business from the liabilities of the real estate, and you as an individual from the debts and liabilities of both. If the real estate is in your name, then if someone slips and falls, they are going to sue you individually, which could put all your personal assets, including your house if you own, at risk.
Because every situation is different, I would suggest meeting with a lawyer so you can go over with him/her exactly what you are trying to do, he/she can ask you specific questions regarding the potential transaction, and you can get advice specific to you rather than just general law. It is better and less expensive to get things set up correctly in the first place rather than have to get a lawyer to fix problems down the road.
I hope I have been at least some help. If you have any further questions or would like to set up an opportunity to discuss your situation in more detail, feel free to contact me.
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